Payments banks will change banking habits: Jaitley

Indian Finance Minister Arun Jaitley on Friday said the proposed payments banks will change banking habits in the country and act as a "game changer" for the economy.

"Payments banks will change the banking habits of people, it will change the way they think, it will change the way they keep the money, where they keep their money, it will change the way they pay," Jaitley said at the Indian Bank foundation day event here.

"Using banks for all transactions, small and middle, will become a habit of the people. More and more outside of the regular economy will get into the economy," he said.

"This itself is going to be a big game-changer as far as the Indian habits and Indian economy is concerned," he added.

Jaitley said that the banking network is expanding much, while the health of banks reflects on the challenges for the economy.

"While on one hand we can take some satisfaction in the fact that networks are expanding across the country, there is huge amount of activity which is still to be done," he said.

The Reserve Bank of India will issue licences to small finance banks to operate next month, RBI Governor Raghuram Rajan said on Thursday.

On Wednesday, the RBI issued the "in principle" approval to 11 applicants, including Reliance Industries Ltd, Aditya Birla Nuvo Ltd, Department of Posts and Cholamandalam Distribution Services Ltd, to set up payment banks.

The new entities - small finance banks and payment banks - are not threats to the existing banks, Rajan said at a conference in Mumbai organised by the State Bank of India (SBI).

Small finance banks are similar to universal banks but would operate on a small scale. The central bank has got 41 applications for payment banks and 72 applications for small finance banks.

Jaitley also said that the government has launched an all-out effort to address the major problem of state-run banks' non-performing assets (NPAs), or bad loans.

"An all-out effort has been launched to correct the health and bring NPAs down. The effort by the bank administration, the effort by the government to infuse more capital, the effort to get more finance by divesting, and more importantly addressing the concerns of each of the sectors," he said.

"And I don't have a doubt that over the next few quarters, the banks will be able to address these challenges," he added.

Gross NPAs of public sector banks have gone up to Rs.260,531 crore as in December 2014. In the fourth quarter (January-March 2015), NPAs had come down from 5.64 to 5.2 percent.